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To settle a New York state probe of alleged collusion and price gouging by banks and insurers, the country's largest force-placed insurance company will lower its rates and cease making payments to banks.
March 21 -
A settlement between New York and the nation's largest force-placed insurer will kill bank commissions in the state and could dramatically alter the structure of the specialty insurance industry.
March 21
New York's Department of Financial Services has settled price gouging and kickback allegations with QBE, the second largest provider of force-placed insurance services to banks.
Like an earlier deal with force-placed market leader Assurant last month, the settlement includes a ban on commissions and free services to banks, tighter controls on pricing, and a relatively small monetary penalty — in this case, $10 million.
"The kickbacks and payoffs in the force-placed insurance industry used to be a dirty little secret that pushed far too many families off the foreclosure cliff," New York Gov. Andrew Cuomo said in a release announcing the deal Thursday. The settlement, he said, "will mean lower home insurance costs and better protections for many working New Yorkers."
Force-placed insurance is a type of backup property insurance that banks purchase on uninsured properties to protect investors. Though banks buy the insurance, they don't pay for it — they pass along the price to homeowners and investors like Fannie Mae and Freddie Mac.
Over the last few years, banks' purchase of force-placed insurance has become controversial as consumer advocates and state regulators have alleged that the country's two largest insurers routinely inflated the cost if the coverage and split the proceeds with banks in the form of unearned commissions and other payments. Private lawsuits and an investigation by New York's superintendent of banks and financial services, Benjamin Lawsky, revealed that bank-owned insurance agencies had received insurance commissions without employing a single insurance agent.
The kickback allegations sparked investigations in several states and a proposed ban on commission payments by the Federal Housing Finance Agency, which is the conservator of Fannie Mae and Freddie Mac. Some states, such as Florida, have settled for far less significant reforms, which merely limited alleged kickbacks but did not ban them.
On Thursday, Lawsky said the settlement would likely be extended to the remaining insurers in New York's force-placed market.
"The momentum behind New York's force-placed insurance reforms is continuing to build. We urge other regulators to pick up the ball and run with it by implementing New York's reforms nationwide," he said.
